Compaq Rebounds PC Prices Increase 15%
by: PC_Industry
12/10/1999 8:28 am EST
Msg: 122870 of 122880
* Price market upturn, Demand > Supply, Compaq Raised PC Prices 5%-15%
* Retailers rebating customers as power returns to PC Manufacturers
* PC Prices shift to Over $1K
* Retailers Wal-Mart, etc see "strong sales"
* IBM pullout will Help Compaq
Home-PC Sales for Holidays Trail Summer's Hot Pace pdated 7:18 PM ET December 8, 1999
According to surveys of retailers and consumers, November retail PC sales are running about 20%
ahead of year-ago figures -- still good, but below the gains recorded during a supercharged summer.
Analysts said while sales are generally healthy for the holiday period, they won't come close to
matching the 30% gain during last year's Christmas season or the heady 40% year-over-year gains of
the past summer.
"This is turning out to be a pretty good year said Vadim Zlotnikov, an analyst with Sanford C.
Bernstein.
Why? One reason is that computers cost a bit more. Since September, home-PC market leaders
Compaq Computer Corp. and Hewlett-Packard Co. increased their least expensive machines' prices
by $50.
One reaction to that slowdown: Retailers are stepping up participation in rebate programs and
expanding these discounts to boost sales. This week, Circuit City Stores Inc. joined the
instant-rebate bandwagon after reporting lower-than-expected November PC sales.
Mr. Zlotnikov says despite the slowing sales gains, consumers' love affair with PCs appears largely
intact. Last month, he surveyed more than 1,000 U.S. households and found 30% of those polled are
planning to purchase a new PC. Last week, the U.S. Commerce Department reported the value of
manufacturers' October computer shipments jumped 19% from year-ago shipments after declining
the prior two months.
Retailers Best Buy Co. and Wal-Mart Stores Inc. say PC sales have been strong across the nation.
Some home-PC makers also report strong demand from retail store and Web customers.
Hewlett-Packard says the day after Thanksgiving was the biggest single day for home-PC sales in its
history, thanks to a Wal-Mart promotion.
The recent decision by International Business Machines Corp. and Packard-Bell NEC Inc. to stop
selling PCs in retail chains should benefit Compaq and mail-order giant Gateway Inc., according to
analysts.
Meanwhile, Compaq and Hewlett-Packard's price increases have boosted the average selling price by
between 5% and 15% since September, according to retail surveys. Allison Boswell, whose Boswell
Report tracks retail sales data, estimates the average price of a PC sold in November at $983, up
from $838 in September. Other researchers report smaller increases.
Ms. Boswell says the average price reflects manufacturers' price increases and that customers
routinely buy more-expensive machines at Christmas. She estimates sales of PCs priced below
$1,000 accounted for 57% of November sales, down from 82% in October.
While sales have slowed since summer, she said availability and pricing are better than feared just
two months ago, when the double shock of higher memory-chip prices and component shortages
looked to crimp holiday sales. "That crisis has passed," says Ms. Boswell.
Consumers' willingness to spend on higher-priced machines could lessen the impact of lower unit
sales growth on manufacturers. Stephen Baker, an analyst at market researcher PC Data Inc., says
if manufacturers can sustain 20% unit sales increases and a 5% boost in average selling prices, they
could see revenue growing in the double-digit range again -- compared with recent revenue declines.
Consumers are likely to see the higher prices remain for the near term. Mr. Baker says the
lowest-priced machines due out after the holidays from Compaq and Hewlett-Packard will likely start
at $599, up $100 from the companies' lowest-priced models in September.
Copyright (c) 1999 Dow Jones & Company, Inc.
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